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Royal Caribbean Hits 52-Week High

Zacks Equity Research

Shares of leading cruise operator, Royal Caribbean Cruises Ltd. (RCL) reached a 52-week high of $53.50 on Mar 19, 2014. The stock price has been gaining momentum ever since the company reported strong fourth quarter results on Jan 27, 2014.

Adjusted earnings of 23 cents per share beat the Zacks Consensus Estimate of 18 cents by 27.7% and increased 130.0% year over year. Earnings were also above management’s guidance range of 15 cents to 20 cents per share. Earnings in the quarter received a boost from higher revenues.

Total revenue in the quarter increased 2.7% year over year to $1.854 billion and was ahead of the Zacks Consensus Estimate of $1.849 billion by 0.27%. Increased onboard and other revenues and solid close-in demand in Europe and Asia backed the top line.

Net yields increased 3.8% year over year, better than the expected range of 2.0% to 3.0% owing to continued strength in European and Asian sailings and solid onboard revenues. The company’s occupancy rate increased 150 basis points year over year to 103.3% in the fourth quarter.

Given the better-than-expected results, the company increased its earnings guidance for 2014. The company expects earnings per share in the range of $3.20 to $3.40 compared with the previous expectation of $3.06 per share. Despite inflationary pressure, rising insurance costs and continued investments in product and marketing, net cruise costs excluding fuel are expected to be flat to slightly down in 2014.

Driven by the strong results and optimistic outlook, estimates for 2014 and 2015 have largely moved upwards over the last 60 days. Average surprise for the last four quarters was 61.57%.

Royal Caribbean has been facing negative publicity following a string of mishaps. However, a 130.0% year-over-year increase in quarterly earnings driven by higher prices in Europe and Asia demonstrates resurgence in demand. Going forward, we expect the company to deliver strong results given the solid booking trends and profitability initiatives undertaken by the company.

Royal Caribbean sports a Zacks Rank #1 (Strong Buy). Some other stocks worth considering in the leisure and recreational services sector include Live Nation Entertainment, Inc. (LYV), Carnival Corporation (CCL) and SFX Entertainment Inc. (SFXE). All these stocks carry a Zacks Rank #2 (Buy).

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